By Lucia Mutikani
WASHINGTON (Reuters) – U.S. employers hired more workers than expected in November and the jobless rate fell to a five-year low of 7.0 percent, heightening expectations the Federal Reserve will soon start ratcheting back its bond-buying stimulus.
Nonfarm payrolls increased by 203,000 new jobs last month, the Labor Department said on Friday.
The unemployment rate dropped three tenths of a percentage point to its lowest level since November 2008 as some federal employees who were counted as jobless in October returned to work after a 16-day partial shutdown of the government.
Economists polled by Reuters had forecast payrolls rising only 180,000 last month and the unemployment rate falling to 7.2 percent from 7.3 percent.
Job gains for September and October were revised to show 8,000 more jobs created than previously reported, lending more strength to the report. Other details were also upbeat, with employment gains across the board, average hourly earnings rising and the workweek lengthening.
In addition, the jobless rate fell even as the participation rate – the share of working-age Americans who either have a job or are looking for one – bounced back from a 35-1/2-year low touched in October.
“The U.S. labor market is still far from healed, but it certainly is moving in the right direction,” said Eric Stein, co-director of the Global Income Group at Eaton Vance Investment Managers in Boston.
U.S. stocks bounced higher at the open, the dollar rose against the euro and the yen, and U.S. benchmark Treasury yields hit a three-month high as traders increased bets the Fed could reduce its bond purchases as early as its next meeting on December 17-18.
The central bank has been buying $85 billion in Treasury and mortgage-backed bonds each month to hold long-term borrowing costs down in a bid to spur a stronger economic recovery.
Despite the jobs data, many economists said the central bank was still likely to hold off reducing its purchases until January or March to ensure the economy was on solid ground.
“This number puts a December taper on the table, but it isn’t a certainty,” said Stein.
MIXED ECONOMIC DATA
Economic data so far for the fourth quarter have been mixed, with labor market and consumer spending indicators firming. However, the housing market and business spending have slowed.
Economists believe the Fed will probably not want to pull back on its stimulus before lawmakers on Capitol Hill strike a deal to fund the government. That could come as soon as next week, however. Congressional aides have said negotiators were down to the final details as they tried to close in on a deal.
A separate report from the Commerce Department showed consumer prices were steady in October, after having risen by 0.1 percent for three straight months. Over the past 12 months, prices rose 0.7 percent, the smallest gain since October 2009.
Excluding food and energy, prices were up just 0.1 percent for a fourth straight month. These so-called core prices were up only 1.1 percent from a year ago.
Both inflation measures remained well below the Fed’s 2 percent target, and some economists said they provided another reason for the central bank to move cautiously in pulling back its stimulus.
“I don’t think the Fed is in a big rush to do anything drastic in the absence of inflation,” said Michael Marrale, a managing director at ITG in New York. “A few strong jobs numbers does not mean we are out of the woods.”
Job gains in November were broad-based. Private-sector payrolls rose 196,000. But government employment also increased as hiring by state and local governments offset a decline in federal employment.
Manufacturing payrolls moved up 27,000, rising for a fourth straight month. Construction employment advanced 17,000, adding to October’s gains even as the housing recovery has slowed.
Retail employment slowed, adding 22,300 last month compared to 45,800 in October. A late Thanksgiving holiday could have resulted in some of the seasonal hiring not being captured in November’s report.
Leisure and hospitality, as well as professional and business services payrolls showed gains, but at a slower pace than in October.
The report also showed average hourly earnings rose by four cents last month, while the length of the workweek edged up to an average of 34.5 hours from 34.4 hours – both bullish signs for the economy.
WALL STREET CLIMBS AFTER UNEMPLOYMENT REPORT
U.S. stocks climbed on Friday, putting the S&P 500 on track to halt a five-session losing streak, in the wake of a stronger-than-expected payrolls report.
Nonfarm payrolls increased by 203,000 new jobs last month and the jobless rate fell to a five-year low of 7.0 percent. Economists polled by Reuters had forecast payrolls rising 180,000 last month and the unemployment rate falling to 7.2 percent from 7.3 percent.
After an eight-week run that saw the S&P 500 climb nearly seven percent, the benchmark index had dropped 1.2 percent over the past five sessions, its longest losing streak since late September, as encouraging economic data increased expectations the Fed may soon trim its $85 billion in monthly bond purchases.
Many market participants have expected the Fed to announce a cut in stimulus in March. The Fed has said it would slow its massive bond purchases when certain economic measures meet its targets, including a decline in the U.S. unemployment rate. The payrolls report Friday may help gird expectations the economy would be able to support a Fed wind-down of stimulus.
“I don’t think the Fed is in a big rush to do anything drastic in the absence of inflation. A few strong jobs numbers do not mean we are out of the woods,” said Michael Marrale, head of research, sales and trading at ITG in New York.
“That said, we are in a very good spot and we can offset growth with tapering and we come out of this in one piece.”
Other data showed consumer spending increased 0.3 percent in October after rising 0.2 percent in September. Economists polled by Reuters had expected consumer spending, which accounts for about 70 percent of U.S. economic activity, to gain 0.2 percent in October.
The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment jumped to 82.5 for December, up from a final reading of 75.1 in November. This was the highest reading for the index since July, and topped analyst forecasts for a reading of 76.
The Dow Jones industrial average <.DJI> rose 133.09 points, or 0.84 percent, to 15,954.6, the S&P 500 <.SPX> gained 15.35 points, or 0.86 percent, to 1,800.38 and the Nasdaq Composite <.IXIC> added 24.247 points, or 0.6 percent, to 4,057.412.
J.C. Penney Co Inc
Struggling retailer Sears Holdings Corp